Proposed Climate Damage Payments to India Linked to Carbon Pricing – Greenstone’s New Book

Overview University of Chicago economist Michael Greenstone , together with Nobel laureates Abhijit Banerjee and Esther Duflo , propose that rich nations compensate people in developing countries for the climate harm caused by their emissions. The payment would be made directly to citizens, but only if the recipient country adopts a carbon pricing mechanism. The idea is outlined in their forthcoming book Just Economics . Key Developments Payments would be calculated based on the damage caused by OECD emissions and transferred directly to individuals in the Global South, starting with India. The transfer is conditional: the recipient must implement a credible carbon pricing scheme. Greenstone cites the success of the Surat Emissions Trading Scheme as evidence that market‑based approaches can work in India. Future market designs are being piloted for sulphur‑dioxide emissions in Maharashtra and may be linked across states. Important Facts • The authors argue that 82% of future global emissions will come from outside the OECD nations, making moral appeals ineffective. • Existing climate finance has largely failed to reach the Global South, prompting the search for new mechanisms. • In the Surat trial, 150 textile plants participating in the market achieved 99% compliance, compared with roughly one‑third compliance under traditional regulation. • Enforcement was strengthened by fines set at ten times the permit value, demonstrating the importance of credible penalties. UPSC Relevance The proposal touches on several GS topics: Global South vulnerability, international climate negotiations, and the role of market‑based instruments in environmental policy. Understanding the dynamics between developed and developing nations, and the practical challenges of implementing carbon pricing , is essential for answering questions on climate governance and sustainable development. Way Forward 1. Bilateral or regional agreements (e.g., EU‑India) could pilot the payment‑for‑damage model while testing carbon‑pricing frameworks. 2. Strengthen enforcement capacities in Indian states to monitor emissions in real time, reducing the “Achilles heel” of hidden pollution. 3. Explore linking state‑level emissions markets to create a larger, more liquid trading platform. 4. Align the new mechanism with upcoming climate talks in Turkey (2026) to secure political buy‑in and funding.